The measurement of rationing and the treatment of structural change in the UK mortgage market

UK mortgage markets have undergone major structural changes in the past few years, resulting in mortgages no longer being rationed. The ending of rationing has implications for the specification of empirical models of housing demand. Housing models have never adequately resolved how to incorporate unobservable mortgage rationing. Conventional proxy methods are particularly unsuitable, when rationing ceases. In this paper, we propose a new way of measuring rationing directly, which incorporates regime switching. The model of rationing is extensively tested and estimates of rationing for the period 1963-1988 are provided; these may be easily incorporated into housing demand studies.